Pakistan’s banking system sound, deposits perfectly safe: SBP

KARACHI: State Bank of Pakistan (SBP) on Thursday clarified that banking system in Pakistan is safe and sound under a robust regulatory and supervisory framework of SBP with a layer of protection through insurance cover and all the deposits were perfectly safe.

The banking system in Pakistan is adequately capitalized, highly liquid and profitable and its ability to withstand a set of severe shocks has further improved while 94% of the depositors were fully protected under the Deposit Protection Act 2016, the central bank clarified through a statement issued here.

The SBP spokesperson said that certain sections of the media, on the basis of a statement given by Deputy Governor SBP, Dr Inayat Hussain during the meeting of Senate Standing Committee on Finance and Revenue, were implying as if bank deposits above Rs500,000 in the banking system in Pakistan were unsafe.

The SBP categorically stated that the deposits were safe owing to a sound banking system in Pakistan that was working under a robust regulatory and supervisory framework of SBP while the sector was adequately capitalized, highly liquid and profitable with a low level of net non-performing loans, i.e. bad loans.

The banking sector posted a strong profitability of Rs284 billion in first half of CY23, which is almost 125 percent higher than the first half of CY22 and the higher earnings, in turn, also strengthened the capital of banks and the Capital Adequacy Ratio (CAR) of the banking sector increased to 17.8 percent by end June 2023 compared to 16.1 percent as of end June 2022.

The ratio was substantially higher than SBP’s minimum regulatory requirement of 11.5 percent and international standard of 10.5 percent, the statement noted adding that with improvement in solvency buffers, the ability of the banking sector to withstand a set of severe shocks has further improved.

It further stated that in addition to the soundness of the banking system, Deposit Protection Corporation (DPC) has added another layer of protection by providing insurance cover of up to Rs500,000 to every depositor that was in line with the best international practices and global trends.

Deposit protection, is one of the key elements of safety net used by supervisory authorities and deposit protection agencies around the world to provide protection to the depositors’ funds in the unlikely event of a bank failure.

The amount insured by the DPC becomes immediately available to depositors in case a bank fails while the remaining amounts of the deposits are also recoverable as the troubled bank is resolved through a regulatory assisted process, the statement further clarified.